Assessing The Multi-Directional Efficiency Analysis Of Ghanaian Insurers In The Presence Of Undesirable Output

Abstract

Insurance contributes to a country’s economic growth and development. However, despite the plethora of insurance efficiency studies in literature, there are very few insurance efficiency studies in Ghana. Besides, insurance penetration is yet to grow significantly in Ghana, even though various reforms have been enacted to increase insurance penetration and insurance efficiency in Ghana. This study seeks to evaluate the aggregated and disaggregated efficiencies of insurers in Ghana over a sample of 30 insurers from 2008 to 2019, using the non-oriented non-radial multi-directional efficiency analysis and to investigate the impact of competition, leverage, size, solvency, profitability, insurer type and underwriting risk on MEA insurance efficiencies using robust econometric models. The study data was obtained from the audited financial reports submitted to the NIC. The results confirmed the distortions in insurance efficiency assessment when undesirable outputs are excluded from insurance efficiency estimation. Among the insurer variables, investment income was identified as the worst performing output variable, reducing the overall performance of insurers. Claims was identified as the best performing variable followed by labour. Among the insurance groups, life insurers were observed to be performing significantly well on its aggregated and disaggregated efficiencies than the non-life insurers. Finally, the previous year’s overall performance of insurers and the level of competition were identified as the determinants of MEA insurance efficiency in Ghana. The inclusion of claims as an undesirable in insurance efficiency assessment enables insurance regulators identify the true efficiency levels of Ghanaian life and non-life insurers. Key words: Claims, Insurance, Multi-Directional Efficiency Analysis, Second-Stage Analysis, Undesirable Output.